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How can we protect ourselves after releasing a lien? (COVID related compensation)

CaliforniaCoronavirusLien Releases

We would like to release a lien but we would like some advice before we do that. We would like to ensure that in case the owners compensate their general contractor (who we are a sub to) for COVID related reasons, we want to make sure that we are still able to collect such compensation from the GC after we have released the lien. Can we put some sort of verbiage on the lien to protect us in case the GC should come back and say "you released the lien, so we do not owe you anything"?

1 reply

Dec 14, 2020

I'm not sure I understand your question, but I'll share some information and articles that might be useful when discussing lien releases. Note that there's a difference between a lien waiver and a lien release - so if you were referring to a lien waiver, the below information might not all be applicable. More on the difference here: Lien Waiver vs. Lien Release: What’s the Difference? 

If you're inquiring about lien waivers, note that conditional mechanics lien waivers help to avoid situations where payment is promised, a waiver is given, then payment doesn't actually get made. More on those waivers here: Unconditional Lien Waivers vs Conditional Lien Waivers.

Filing a lien release

Generally, when filing a lien release, a claimant simply releases the mechanics lien they have filed. Filed lien releases generally cannot be conditional - they either release the lien that's been filed, or they don't. Granted, if there's some outstanding compensation owed, but a lien claimant wants to release their lien filing anyway, then it might be wise to ensure that the lien release filed simply releases the lien document and doesn't affect other potential claims moving forward.

Of course, timing a lien release can be tricky. As you noted above, if a lien is released before payment is made, then it's possible for a lien claimant to end up with no lien rights and no payment. More on that here: Construction Lien Release Process: the Timeline is Tricky.

Mechanics lien amounts in CA

Note that mechanics liens are generally only available for the value of the work performed - and other amounts potentially owed generally shouldn't be included in a lien claim. In fact, CA is particularly strict on what can be included in lien claims. 

§ 8430(a) of the CA Civil Code states that the amount of a mechanics lien is limited to the lesser of the following amounts: (1) The reasonable value of the work provided by the claimant; and (2) The price agreed to by the claimant and the person that contracted for the work. 

So, if you've filed a lien for more than that - the lien may be considered invalid or unenforceable. Even if you haven't included improper amounts in a lien claim, demanding payment above and beyond what's been liened or what could be liened might not be very wise if you've been paid what's on the lien claim. And, if you're worried about a situation where lien rights are released or waived, then some covid related compensation is made - note that if the compensation doesn't actually relate to the reasonable value or price of the work, then it couldn't be included in a lien claim anyway.

Additional resources

For further discussion on CA mechanics liens and waivers: (1) California Mechanics Lien Rules & FAQs; and (2) California Lien Waivers Guide and FAQs

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